How to calculate billable utilisation in a services firm
The formula is simple and almost everyone applies it to the wrong denominator. Working through it with leave, holidays and approved hours included changes the answer more than most finance teams expect.
Utilisation is billable hours divided by available hours, and almost every mistake in the number comes from what goes in the denominator. Available hours means capacity after leave, holidays and non-billable allocation are removed — not headcount times a standard working week. Get the denominator right and use approved rather than logged hours in the numerator, and the number finally means what people think it means.
Utilisation is the single number that most influences whether a services firm believes it is healthy, and it is also one of the easiest numbers to get quietly wrong. The formula everyone quotes is billable hours divided by available hours. The disagreement is almost never about the formula. It is about what counts as available.
The formula, and the denominator everyone gets wrong
There are three candidate denominators in circulation, and only one of them produces a number you can act on.
A worked example for one team, one month
Take a six-person delivery team in a 22-working-day month, with a standard 8-hour day.
| Step | Hours | Running total |
|---|---|---|
| Headcount × working days × 8h (contracted hours) | 1,056 | 1,056 |
| Less: approved leave (3 people, 2 days each) | −48 | 1,008 |
| Less: one public holiday, 6 people | −48 | 960 |
| Less: bench time on one person, 5 days | −40 | 920 |
| Available hours | 920 | 920 |
If billable hours for the month were 780, utilisation on contracted hours (1,056) reads 74 per cent. Utilisation on available hours (920) reads 85 per cent. The team did not change. The only thing that changed is whether the denominator was honest about how many hours anyone actually had to give.
A utilisation figure that ignores leave and holidays does not describe your team's performance. It describes your calendar, and blames the team for it.
Why approved hours change the numerator too
The same discipline that applies to the denominator applies to the numerator. Billable hours should mean hours a manager has confirmed were productive client work, not hours a developer logged against a billable ticket. The gap between logged and approved hours on billable work is usually smaller than on internal work, but it is rarely zero, and on a fixed-price engagement it is the gap between what you delivered and what you can defend having delivered if a client ever asks.
Target utilisation isn't 100%
A target of 100 per cent is a target for zero training, zero internal improvement work and zero slack for the unexpected — which makes it a target nobody should actually want to hit. Healthy ranges vary by role and by how the firm sells time, but most services businesses land in a narrow band.
Where the number breaks down operationally
In practice, the calculation breaks down not on the maths but on where the inputs live. Leave sits in an HR system, holidays sit in a calendar someone maintains separately, and billable hours sit in a project tool or timesheet product. Getting an honest monthly figure means someone reconciling three exports by hand, every month, which is exactly the kind of task that gets done late, done roughly, or eventually not done at all.
The fix is structural rather than mathematical: keep leave, holidays and delivery hours on the same data model so available hours calculates itself the moment a leave request is approved, rather than being reconstructed after the fact from whatever records survived the month.
In Goalz, leave, holidays and approved hours sit on the same employee record, so available hours and utilisation calculate live instead of being rebuilt every month from separate exports.